It’s time once again to lambast the idiots that are pretenders when it comes to reading the tea leaves of inflation data. Yes, I’m referring to most of the talking heads on the business news shows. It’s common knowledge (even Powell says it’s so) that inflation may be a little choppy for a bit, which is why interest rates are staying higher for longer. Also, monthly reads are noisy with weather, seasonality and supply chain issues (Red Sea detours, for one) playing a role – which is why I use year-on-year comps rather than monthly. So, what happened? The monthly numbers came in hotter than analysts expected, providing a buying opportunity on Tuesday and Friday. As you can see, the (unrevised) Y/Y actuals paint a slightly different picture.
Yes, we all have opinions which can – and does – lead to differing conclusions. The word of caution is to do your own due diligence to ensure you understand the basis of an opinion.
Another example of this in action is Daniel Jones’ perspective on Village Supermarket (VLGEA) on Seeking Alpha. His analysis, rife with supporting charts ponders the dual narrative of undervaluation and M&A prospect. In a classic case of missing the forest for the trees (unless he’s a buy-side promoter), his evaluation fails to dig much deeper than management’s highlight reel.
I’ll give him a break on peer comparisons as in this space there are few good ones. To include fuel sales (KR and CASY), along with one staggering digesting an acquisition and IT upgrade (GO) is a misleading mix. My (rare) comment highlights greater issues:
“First, the subsequent sentence in their 10-K: Same store sales increased due primarily to retail price inflation. – indicative of no organic growth.
Second no dividend growth.
Third, don’t hold your breath waiting on a buyout due to their Wakefern relationship (contractually obligated purchasing, IP, IT, insurance) with a 10-year termination window. 85% (or more) of all merchandise is sourced via the Wakefern cooperative.
I didn’t even get into the incestuous relationship between Wakefern and the Sumas family (Board structure), all of which can be found via a cursory read of the 8-K. Bottom line, Village is hostage to their primary supplier with the inability to source on a low-cost basis – a point not identified by Daniel. I would posit this leaves them vulnerable to the vagaries of inflation.
I did take advantage of the market reaction to buy the dip (a little). Buying the dips as a strategy has been a mixed bag of late, but with a long-term view I expect will equalize over time. This round I made my requisite monthly purchase with accumulated dividends of Alcon (ALC) as an increase to my existing holdings.
This is not the typical company for the community at-large due to their minimal annual dividend (~0.31%), lack of dividend history (prior ownership Nestle (NSRGY) then Novartis (NVS)) and the Swiss tax withholding (and partial recovery thereof). My reasons are portfolio management and demographics. I’m a little light in the healthcare sector so this purchase partially addresses that. With an aging population, their focus on glaucoma and cataract surgeries will be a tailwind. If I’m wrong, this remains a minor investment.
While it is said that beauty is in the eye of the beholder, so too (I guess) are analysts’ assumptions. As for me, I continue to take all with a grain of salt until I can find no fault with their thesis.
Have a good, shortened, holiday week!
Seeking Returns 